written by | May 26, 2022

How to Create a Family Budget?

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Understanding what a family budget is and the fundamentals of the family budget, the family budget, is a plan for your household's incoming and outgoing funds over a specific time period, such as a month or year. A family budget is a plan for your household's incoming and outgoing funds over a specific time period, such as a month or year. For example, you might set aside specific cash amounts or percentages of your combined monthly income for various expenses such as food and saving, investing, and debt repayment.

Angela Moore, a certified financial planner in Orlando, says, "Your budget is simply a tool for empowering yourself". She claims that many people spend their money without thinking about it, but you get to pick how to use that money to work for you. 

Did you know?

The family budget calculator from EPI calculates how much money a family needs to maintain a modest but decent living level. The budgets project community-specific costs for ten different family types (one or two adults with zero to four children). EPI's family budgets provide a more accurate and thorough measure of economic security in India than the government poverty line and the supplemental poverty measure.

Simple Family Budget Plan Strategy

A family budget is vital for money management. Because a family budget allows you to:

  • Spend your money wisely on the necessities - these are your requirements.
  • Save money for the things you enjoy but could do without - these are your desires.
  • Set money aside for unexpected expenses - for example, if your automobile breaks down and requires repairs, don't overspend.
  • Calculating how much money you'll need for daily necessities like food, housing, utilities such as gas, electricity, phone, water, transportation, and medical services will help you budget for unforeseen expenses and emergencies.

Also Read: How to Plan and Manage Your Personal Finance?

Let us now understand how can one create a family budget and what are some important points one needs to keep in mind while creating a family budget-

According to Moore, set out time on your calendar for you and the other adults in your household to begin budgeting. (This may be you and your partner, your grown children, or your parents.) Scheduling holds you accountable and ensures that everyone is calm and focused on the task.

"Creating transparency about where you are currently is the first step," Moore explains. She suggests that everyone's money be audited first.

Start with rough estimates. Make a list of how much money you have in savings. Then go over your debts: What is the total amount owed on each debt, including monthly payments and interest? Repeat the process for regular monthly expenses such as your water bill. Finally, make a budget for the rest of your expenses. Break down your monthly spending into how much you spend on groceries, gas, clothing, and other items. According to Moore, you can record these charges individually or as a group.

Remember that you're only guessing at this stage. "All you want is a general overview," Moore says, adding that the exercise should take approximately 15 minutes. Then create a budget for yourself. To avoid becoming overwhelmed, take a slight pause. After that, log in to each of your financial accounts and list the real amounts you had estimated.

Moore has helped numerous clients navigate this process. She claims that figuring out the exact amounts is often an "awakening experience," as many people grossly underestimate their spending.

You and your family may undoubtedly find a few strategies to improve your finances from here. Perhaps you weren't aware of how much interest you paid on a particular loan and decided to contact and bargain. Alternatively, you may discover that you are still paying for a membership that you should cancel. You might realise that you're spending twice as much money as you thought you would on groceries by using coupons.

"Decide where you can cut or eliminate specific expenses, and then figure out how to reallocate those dollars to better align with your objectives," Moore advises.

At the very least, you now have a better understanding of your family's financial situation. You'll also have a baseline of your savings, debts, and expenses to see how they change as you begin budgeting.

Get clear on how much money is coming in and where your money is going. Take note of everyone's monthly earnings. Then try your hand at a budget for the first time.

As a starting point, we favour the 50/30/20 budget. It distributes your earnings in three ways:

  • 50% goes on necessities like food, housing, essential utilities, transportation, insurance, child care, and minimum loan payments.
  • 30% goes into wants like travel, presents, and eating out.
  • 20% goes for debt repayment and saving for an emergency fund or retirement.

Using a Worksheet or Application

A tool may also be beneficial to you. For instance, this free budget worksheet asks you to list every household expense before displaying how your spending fits into the 50/30/20 split. Free budget spreadsheets are also available from Microsoft Office, Google Drive, and other websites, which you may share with your family.

Perhaps you'd like to go mobile. These budgeting applications for couples allow you and your partner to compare spending and saving data. Other budgeting apps for families include Goodbudget and You Need a Budget.

If you utilise a tool, make sure it's one you're familiar with and will use, advises Serina Shyu, a certified financial planner in Atlanta. "Whatever works best for the ability" should be used.

Shyu, who also serves on the board of directors for the Financial Planning Association of Georgia, believes the budget doesn't have to be perfect. You'll find yourself changing it frequently, especially if you have children or dependents whose expenses fluctuate over time.

What matters more than getting the budget "perfect" is keeping track of it with your family. Schedule monthly budget reviews, much like your initial audit.

When you check-in, take note of how your spending has changed (or not), talk about what you might do differently, and make plans for future expenses. (For example, if you're planning a family vacation, you can opt to cut back on some expenses and put more money toward a travel fund). Shyu emphasises the need to communicate about money and how you feel about it. If you're worried about budgeting or embarrassed about debt, say so. "You'll be coming from a position of understanding," she explains. So, if you're not a spreadsheet wizard, take a different path. Use a tool that tracks your spending for you if you're not going to enter your expenses every day.

Another item to discuss is your personal and family objectives. That information will assist you in making financial plans and sticking to them.

"Once you figure out that 'why,' you'll be more motivated," Shyu says.

Also Read: Tips to Save Money From Your Salary

Conclusion

Meeting your family's daily expenses, dealing with unexpected obligations, and saving for the future are all part of essential money management. It can help you gain control over your finances, reducing stress and making you feel more comfortable. It's a good idea to go over the advantages and disadvantages of your savings plan before you start. You'll know how it will affect your family's life this way. If you're unsure about any aspects of your plan, seek help or double-check your figures before proceeding. It takes effort, patience, and adjusting to create a family budget, but you've got this. We'll go over it with you, so you know what to anticipate.
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FAQs

Q: What does the 50-30-20 budget rule entail?

Ans:

In her book, “All Your Worth: The Ultimate Lifetime Money Plan”, Senator Elizabeth Warren popularised the so-called "50/20/30 budget rule" (also known as "50-30-20"). The primary approach is to divide after-tax income into three categories and spend 50% on necessities, 30% on desires, and 20% on savings. This can help you go a long way while creating a family budget.

Q: What is your actual spending when it comes to a family budget?

Ans:

Money comes in, and part of it goes out again. The cornerstone of your budget is determining exactly how much you now spend each month. First, make a list of all your monthly household bills, such as your mortgage, electricity, credit card payments, gas, and auto loans. Then consider the expenses that are optional rather than necessary. Do you, for example, eat out twice a week or routinely purchase one-time-use apps for yourself and your children? Small everyday expenses can add up to a startling amount over a year; therefore, controlling your variable spending is as important as controlling your fixed expenses.

Q: How much money do you have to start family budgeting?

Ans:

Knowing how much money you have to spend is an excellent place to start when making a budget. In most cases, your after-tax income, or monthly take-home pay, is the most significant source of income. Other sources of income, such as part-time jobs, investment income, or tax refunds, should also be considered.

Disclaimer :
The information, product and services provided on this website are provided on an “as is” and “as available” basis without any warranty or representation, express or implied. Khatabook Blogs are meant purely for educational discussion of financial products and services. Khatabook does not make a guarantee that the service will meet your requirements, or that it will be uninterrupted, timely and secure, and that errors, if any, will be corrected. The material and information contained herein is for general information purposes only. Consult a professional before relying on the information to make any legal, financial or business decisions. Use this information strictly at your own risk. Khatabook will not be liable for any false, inaccurate or incomplete information present on the website. Although every effort is made to ensure that the information contained in this website is updated, relevant and accurate, Khatabook makes no guarantees about the completeness, reliability, accuracy, suitability or availability with respect to the website or the information, product, services or related graphics contained on the website for any purpose. Khatabook will not be liable for the website being temporarily unavailable, due to any technical issues or otherwise, beyond its control and for any loss or damage suffered as a result of the use of or access to, or inability to use or access to this website whatsoever.
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Disclaimer :
The information, product and services provided on this website are provided on an “as is” and “as available” basis without any warranty or representation, express or implied. Khatabook Blogs are meant purely for educational discussion of financial products and services. Khatabook does not make a guarantee that the service will meet your requirements, or that it will be uninterrupted, timely and secure, and that errors, if any, will be corrected. The material and information contained herein is for general information purposes only. Consult a professional before relying on the information to make any legal, financial or business decisions. Use this information strictly at your own risk. Khatabook will not be liable for any false, inaccurate or incomplete information present on the website. Although every effort is made to ensure that the information contained in this website is updated, relevant and accurate, Khatabook makes no guarantees about the completeness, reliability, accuracy, suitability or availability with respect to the website or the information, product, services or related graphics contained on the website for any purpose. Khatabook will not be liable for the website being temporarily unavailable, due to any technical issues or otherwise, beyond its control and for any loss or damage suffered as a result of the use of or access to, or inability to use or access to this website whatsoever.